Thermal Coal Market

December 3, 2018

Short-term supply conditions are marginally bearish. Supply increases in the Atlantic basin remains on the ascendancy which is offensive to prices. However, we do pickup marginal improvements in supply conditions in the Pacific which will likely support NWC or NWC-API2 spread prices. The net re-stocking trend in the EU has persisted which should absorb any additional supply in the market. However, we see a further build-up in inventory across several key coal consuming countries. This is expected to put a drag on prices.

We estimate short term demand as bearish. We expect lower fossil fuel utilization in Europe which implies lower coal consumption. Weakness in the Chinese coal DoC has persisted however we expect this to improve marginally from week 49. Slowing demand from other North Asian countries (Japan-S.Korea-Taiwan) remains in place which is in line with the weaker manufacturing conditions that we observed in the macro section.

Macroeconomic conditions are bearish. Weak lending and manufacturing conditions remain in place which will likely dampen near term coal demand. Short-term energy intensity continues to weaken and is expected to continue going into week 49. Currency conditions remain supportive as a weaker dollar is picked up by our model which suggests stronger purchasing power by importers and a lower incentive to export which would provide some support to prices.